Futaba Industrial Co., Ltd. Business Report FY ended Mar. 2015

Financial Overview

(in million JPY)

FY ended Mar. 31, 2015

FY ended Mar. 31, 2014

Rate ofChange (%)

Factors

Overall

Sales

422,874

399,378

5.9

-Sales increased y/y due to the Company’s all-out efforts to improve its profitability. It reorganized is production structure, increased production efficiency, reduced costs, improved supply chain management, and cut delivery costs.

Operating income

4,367

2,784

56.9

-

Ordinary income

2,116

2,073

2.1

Current net income

1,039

2,954

(64.8)

-It was revealed in the FY that ended March 2015, that YMP Press & Dies (Thailand) Co., Ltd. had mistakenly included a significant amount of new infrastructure costs in intangible fixed assets. In connection with this problem, the affiliate issued revisions to its financial reports for the period between April 2011 and December 2014, and to its reports for January-March 2015.

Business Plan

-The Company has formulated a new midterm business plan for the three fiscal years from April 1, 2014 (FY 2014) through March 31, 2017 (FY 2016). Within the three years, the Company aims to triple its consolidated operating income to JPY 8 billion from the FY 2013 level. The Company aims to boost its profitability by further promoting manufacturing reforms on a global basis. It also focuses on renovating its core technologies to establish a solid foundation for its future growth. Specifically, the supplier aims to establish hot stamping technologies that contribute to developing lightweight vehicle bodies with enhanced safety. It also tries to establish cold pressing technology to form 120kg-class high tensile steel sheets. The Company will further strengthen its global operations mainly in the U.S. and China to boost its competitiveness. (From an article in the Nikkan Jidosha Shimbun on May 22, 2014)

-In 2014, the Company mapped out its second mid-term business plan that covers the period between April 2014 and March 2017. The Company aims to increase its annual sales to JPY 395,000 million and raise its operating income to JPY 8,000 million by the final year of the plan through the following initiatives:

Objectives

Detail

1. Enhancing safety and quality features while stably supplying products to customers

The Company is developing thin-walled ultra high-strength materials by adopting hot-stamping methods and using cold-rolled high-tensile steel plates (tensile strength of 120K). These technologies are expected to help improve collision-safety performances while reducing vehicle weight-The Company will enter the automotive hot stamped parts market in the fiscal year ending March 2016. Hot stamping is a press-molding method using heated steel plate, which enables producing super high-tensile vehicle body frame parts with a tensile strength level of 1,500MPa. Two new lines will be installed at the Mutsumi Plant in Okazaki City, Aichi, Japan, by 2015 and the Company will start to supply hot stamped parts to automakers. The investment will amount to JPY 1.6 billion. The Company will introduce a new molding method to produce body frame parts which contribute to improving collision safety performance and reducing weight of automobiles. Futaba Industrial will also work to develop next-generation parts molding technology to produce parts with a tensile strength of 1,200MPa to differentiate itself from its rivals. (From an article in the Nikkan Jidosha Shimbun on February 6, 2014)

3. Introducing best practices at global operations efficiently

-The Company is promoting local procurement in USA, China, and Europe. The Company hopes to reduce the supply of components that are made in Japan by 70 percent by fiscal year 2017. The export value of components to the three regions amounted to more than JPY 11.1 billion in fiscal year 2012. The Company aims to localize production by developing and nurturing local suppliers, as well as starting in-house production in each region. Although the value of the yen has dropped to 104 against the dollar, the Company wants to establish a stable profit structure that will not be affected by exchange rate fluctuations in the long-term. Futaba will focus primarily on strengthening its competitiveness in the North American market. (From an article in the Nikkan Jidosha Shimbun on December 26, 2013)

4. Refining core technology to provide new value and products

-New exhaust heat recovery system leveraging the Company's heat management technology:The Company, a Toyota-affiliated supplier of mufflers and stamping parts, aims to expand its business with companies outside the Toyota Group with its new POWEREV exhaust heat recovery system. It is normally very difficult for suppliers to develop and produce mufflers for new customers. This is because muffler development requires close collaboration with a customer throughout the entire vehicle design process. On the other hand, an exhaust heat recovery system is a component that can be designed independently. The Company will propose the POWEREV to various automakers, hoping to more than double its sales to JPY 10 billion by the fiscal year ending March 2021. The Company also expects that gaining new customers with the POWEREV will create opportunities for orders of its total exhaust systems from a number of Japanese, U.S. and European OEMs. (From an article in the Nikkan Jidosha Shimbun on December 3, 2013)

-The Company will step up the development and commercialization of environmentally friendly products, especially in the areas of diesel particulate filters and fuel-cell technology for residential use.

R&D Expenditure

(in million JPY)

FY ended Mar. 31, 2015

FY ended Mar. 31, 2014

FY ended Mar. 31, 2013

Overall

2,940

2,586

2,162

-Most of the Company's R&D activities are for automotive components.

-Automakers are expanding the use of ultrahigh-strength stamped parts that have strength of 1,200 MPa to 1,500 MPa to reduce vehicle weight while meeting the collision safety standards of the developed nations. The suppliers affiliated with Toyota Motor Corporation are likely to use both hot and cold stamping method depending on the parts. The Company, Toyoda Iron Works Co., Ltd., and Pacific Industrial Co., Ltd. will invest in the plants in Japan to supply ultrahigh-strength hot stamped parts in full scale to Toyota in the fiscal year ending in March 2016. The three suppliers are also accelerating the development of cold stamping technologies for 1,200 MPa-class ultrahigh tensile strength steel sheets. (From an article in the Nikkan Jidosha Shimbun on June 11, 2014)

R&D Activities

-The Company has conducted various research and development activities as follows:

Development of lightweight and low-cost products in the areas of exhaust systems parts, body frame parts, suspension parts, and fuel systems parts to help automakers produce lighter vehicles

Development of high-performance, compact, and lightweight exhaust heat recovery systems to improve the fuel efficiency of hybrids and other vehicles

Development of heat management systems so as to maximize energy efficiency

Development of high-strength body frame parts made from thin steel sheets by adopting hot-stamping methods and using high-tensile steel sheets that achieve 1,180 MPa. These technologies are expected to help automakers produce lighter vehicles with superior collision safety performances

Development of CO/HC treatment devices for gasoline vehicles and PM/NOx treatment devices for diesel vehicles to reduce exhaust emissions

Development of environmentally friendly heat exchange equipment

Capital Expenditure

(in million JPY)

FY ended Mar. 31, 2015

FY ended Mar. 31, 2014

FY ended Mar. 31, 2013

Japan

9,828

8,998

11,379

North America

4,498

2,681

3,056

Europe

1,599

1,245

699

Asia

4,552

8,548

1,531

Total

20,480

21,474

16,667

-In FY ended Mar. 2015, the Company invested in installing production equipment at the automotive parts business (mainly assembly and welding lines and dies and jigs) to streamline operations and reduce labor to improve its productivity, and also to deal with model changes.

-The Company plans to invest JPY 33,000 million during FY ending Mar. 2016.